Correlation Between Westlake Chemical and Innospec

Can any of the company-specific risk be diversified away by investing in both Westlake Chemical and Innospec at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Westlake Chemical and Innospec into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Westlake Chemical and Innospec, you can compare the effects of market volatilities on Westlake Chemical and Innospec and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Westlake Chemical with a short position of Innospec. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westlake Chemical and Innospec.

Diversification Opportunities for Westlake Chemical and Innospec

-0.5

Correlation Coefficient

Westlake Chemical  Innospec

Very good diversification

The 3 months correlation between Westlake and Innospec is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Westlake Chemical and Innospec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innospec and Westlake Chemical is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Westlake Chemical are associated (or correlated) with Innospec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innospec has no effect on the direction of Westlake Chemical i.e., Westlake Chemical and Innospec go up and down completely randomly.

Pair Corralation between Westlake Chemical and Innospec

Considering the 90-day investment horizon Westlake Chemical is expected to under-perform the Innospec. In addition to that, Westlake Chemical is 1.13 times more volatile than Innospec. It trades about -0.22 of its total potential returns per unit of risk. Innospec is currently generating about -0.2 per unit of volatility. If you would invest  12,104  in Innospec on September 15, 2024 and sell it today you would lose (518.00) from holding Innospec or give up 4.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Westlake Chemical  vs.  Innospec

Westlake Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westlake Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Innospec

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Innospec are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Innospec may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Westlake Chemical and Innospec

The main advantage of trading using opposite Westlake Chemical and Innospec positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westlake Chemical position performs unexpectedly, Innospec can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Innospec will offset losses from the drop in Innospec's long position.

The idea behind Westlake Chemical and Innospec pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Stocks Directory module to find actively traded stocks across global markets.